September 20, 2000
by Andrew Jackson, Director of Research, CCSD
Submitted to The Toronto Star
As crude oil prices continue to surge, cries for cuts to gas taxes by truckers and motorists alike understandably become more insistent. There may be a case for changes here, but increases to the GST credit make most sense from the point of view of protecting low income households from the prospect of soaring heating costs this winter.
Arguably, higher energy prices are here to stay, and are needed to bring about the shift to conservation and higher efficiency to deal with global warming. However, the sharp 11.9% increase in energy prices we have seen over the past year creates very serious immediate difficulties, not just for businesses with high energy costs such as trucking, but also for low income households.
The thermostat can only be turned down so far
While the spotlight has recently been on gas prices at the pump, home heating costs are more significant for most Canadians, and are less easily avoided. People can take the bus or drive less in response to higher gas prices. But the thermostat can only be turned down so far when winter comes.
Statistics Canada data for 1998 show that the average household spent 4.2% of its budget, $1521, on fuel, electricity and water used in the home. The lowest income 20% of households spent 5.6% of their budget on these items, an average of $880.
It is interesting to note that household spending on private transportation tends to rise as a percentage of total spending as income increases, while spending on household energy costs tends to fall. Most seniors spend much more heating their homes than they do on gas, and low-income households tend to rely more on public transit.
No one knows exactly what will happen to home heating costs this winter. But fuel oil and natural gas prices are already soaring - we just haven't noticed it on our bills yet - and we will soon see a pass through into electricity prices in provinces which rely heavily on oil and gas generation. And let's not forget that higher energy prices have already pushed the inflation rate to close to 3%.
Increasing the GST tax credit to protect modest income families
To cushion low income households, the Canadian Council on Social Development calls on the federal government to increase the GST tax credit by $70 per adult and by $30 per child over and above the anticipated inflation adjustment, at an estimated cost of $920 million. The credit, which is paid out in cash, was introduced to protect low and modest income households from price increases caused by the introduction of the GST, and is phased out from a family income level of about $26,000. Single households receive a modest supplement in recognition of the higher costs of living alone.
Increasing the GST credit would give some real protection to low and modest income families with children and to seniors, helping them to adequately heat their homes this winter without squeezing already very limited budgets. It would be a targeted, cost-effective measure, consistent with the long-term goal of making Canada more energy efficient without inflicting unnecessary hardships.